Thank you all for standing by. I would like to welcome you all to the Ingersoll Rand Q4 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, we will conduct a question-and-answer session. Thank you. I would now like to turn the conference call over to our host Matthew Fort of Ingersoll. Matthew, please go ahead.

Thank you, and welcome to the Ingersoll Rand 2022 fourth quarter earnings call. I am Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation this morning and we will reference these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today. Before we start, I want to remind everybody that certain statements on this call are forward looking in nature and subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward-looking statements on Slide 2 for more details. In addition, in today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release, both of which are available on the Investor Relations section of our website. On today's call, we will review our company and segment financial highlights and provide 2023 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow for time for other participants. At this time, I will turn the call over to Vicente.

Thanks, Matthew, and good morning to all. I would like to start by acknowledging and thanking our employees for their hard work in helping us deliver a record year in 2022. We finished the year on a high note, with strong fourth quarter and full year results despite ongoing inflation, rising interest rates, supply chain constraints and geopolitical uncertainty. Our employees consistently exemplify our purpose, while thinking and acting like owners to deliver on our commitment. And our performance this year clearly reinforces the impact we have as owners of Ingersoll Rand. Starting with Slide 3, in 2022, we demonstrated again how we continue to over deliver on our Investor Day commitments. We also made tremendous progress against our sustainability goals, but I'm very proud that Ingersoll Rand was named to the 2022 Dow Jones Sustainability Index. As we look to 2023, demand remains solid. And while macroeconomic, geopolitical and global supply chain uncertainties continue to be at the top of everyone's mind, we will remain agile and focused on what we can control. IRX is our differentiator to fuel our performance and continue to execute on our commitments. Turning to Slide 4. During our last Investor Day, we highlighted how we delivered compounding results through our economic growth engine. We remain committed to our strategy and its success is evident, given the results outlined at the bottom of this page. Our portfolio is positioned to capitalize on global megatrends, digitization, sustainability and quality of life. We expect to leverage our organic growth enablers to deliver mid-single digit organic growth through 2025. And as you can see, we outperformed this commitment again in 2022, delivering 16% year-over-year organic revenue growth. In 2022, we delivered 4% of in-year growth from M&A or 5% on an annual basis. The combined organic growth and inorganic growth of 22% also surpassed a low-double digit growth commitment. As we look to 2023 and beyond, we reaffirm our commitment to deliver total average growth of low-double digits through 2025. Our strong organic growth levers, aftermarket demand generation, as well as our i2V initiatives will enable us to generate operating leverage and incremental productivity with an expected 100 basis points of adjusted EBITDA margin improvement per year on average. With IRX as our competitive differentiator and over 300 IMPACT Daily Management, or IDMs, across our company each week, our high-performance culture encourages a strong focus on execution. This continues to support our goal of being a premier company that consistently compounds earnings on average by double digit each year. In 2022, we continued to achieve that goal with adjusted EPS growth of 13%. Moving to Slide 5. In 2022, we saw strong organic order and revenue growth of 11% and 16%, respectively. Aftermarket continues to be a strategic focus and we delivered growth of 17% excluding FX. Our 120 basis points of adjusted EBITDA margin expansion was driven in part by improvement in our gross margin due to pricing, aftermarket revenue growth and i2V actions. As we continue to align our business to the mega growth trends, we formalized our IR-Digital team to accelerate how we create new revenue streams. It's important to note that this is an incremental investment we made in addition to the teams that reside at the business level. With 19% of our total revenues coming from IIoT-ready products, we have already exceeded our 2023 Investor Day targets. On the right side of the page is a great example of our ability to deliver organic growth by focusing on the sustainability and efficiency megatrend. We were selected to be a critical technology provider for what will be the largest carbon capture and storage project in the world when it comes online in 2024. With a capacity to permanently capture and store 12 million tons of carbon dioxide gas every year. This one project will deliver more than $14 million of value for Ingersoll Rand between 2023 and 2024. On Slide 6, M&A continues to be at the forefront of our capital allocation trends. We invested over $800 million in 12 acquisitions in 2022, including the SPX Flow transaction with the annualized revenue from these acquisitions being approximately $300 million. These acquisitions have added both market-leading products and technologies while accelerating our addressable market with close adjacencies. Our M&A funnel remains strong. And as of today, it continues to be over five times larger than it was at the time of the R&D. More importantly, we currently have 11 transactions under LOI. We expect an additional $200 million to $300 million in annualized inorganic revenue to be acquired in 2023. Finally, we started the year well with regards to executing on our inorganic strategy with the recently completed acquisition of Paragon Tank Truck, a leading provider of solutions used for loading and unloading dry bulk and liquid tanks in demanding industrial environments as well as food and beverage. Moving to Slide 7, we have some exciting news to share. We achieved placement on the DJSI World and DJSI North America Indices. Our score of 81 on the S&P Global Corporate Sustainability Assessment puts us at Number One in North America and Number Four in the world within our industry, which means that we are in the top decile of global companies. This is a perfect example of how we leverage IRX for agile execution across all aspects of our business. In this case, we use our own IRX execution process to go from being unranked to now being in the top 10% of all companies revealed by S&P Global. I will now turn the presentation over to Vik to provide an update on our Q4 and full year 2022 financial performance.

Thanks, Vicente. On Slide 8, we finished the year with strong performance in Q4 through a strong balance of commercial and operational execution, fueled by IRX despite the ongoing macroeconomic uncertainty. Total company organic orders and revenue increased 2% and 19% year-over-year, respectively. We remain encouraged by the strength of our backlog, which is up 30% year-over-year, equating to over $2 billion of backlog. This provides a healthy backlog to execute on as we enter 2023 and gives us conviction in delivering our 2023 revenue guidance. The company delivered fourth quarter adjusted EBITDA of $420 million, a 23% year-over-year improvement, and adjusted EBITDA margins of 25.9%, a 180 basis point year-over-year improvement and a 110 basis point improvement sequentially from Q3. For the quarter, adjusted EPS was up 6% versus prior year. This is despite some meaningful headwinds that I will explain shortly. Free cash flow for the quarter was $321 million, despite ongoing headwinds from inventory due to global supply chain challenges as well as the need to support backlog. Total liquidity of $2.7 billion at quarter-end was up approximately $100 million sequentially. Our net leverage continues to improve year-over-year and sequentially. At 0.8 turns, we're 0.3 turns better than the prior year and 0.2 turns better than prior quarter. Turning to Slide 9. For the total company, Q4 orders grew 5% and revenue increased 21%, both on an FX-adjusted basis. Total company adjusted EBITDA increased 23% from the prior year, with the ITS segment margin increasing 170 basis points, while the PST segment margin improving 330 basis points. It's important to note that both segments are price/cost, dollar and margin positive, which speaks to the nimble actions of our team despite ongoing inflationary headwinds. Corporate costs came in at $33 million for the quarter. And finally, adjusted EPS for the quarter was up 6% to $0.72 per share. This 6% growth includes significant headwinds associated with FX as well as favorability in the prior year tax rate due to one-time benefits that were not expected to recur and an ongoing headwind associated with interest expense. The adjusted tax rate for the quarter was 19.7%, with the full year adjusted rate finishing slightly below 22%. On Slide 10, total company full year orders grew 16% and revenue increased 21%, both on an FX-adjusted basis. Total company adjusted EBITDA increased 20% from the prior year. The ITS segment margin increased 100 basis points, while the PST segment margin declined 70 basis points. When adjusted to exclude the impact of M&A completed largely in 2021, PST adjusted EBITDA margin increased by 60 basis points. As you recall, most of the decline in adjusted EBITDA margins throughout the year was due to the Seepex acquisition. I am pleased to report that Seepex is another amazing story where we acquired a business at mid-teens EBITDA margin and the exit rate in Q4, just five quarters after the acquisition, is in the mid-20%s. We are well underway to getting Seepex to our PST fleet average EBITDA margin. We continue to see sequential increases in PST's adjusted EBITDA margins and now PST margins are generally back in line with where we have seen them historically, at approximately 30%. Both segments finished the year price/cost, dollar and margin positive, which was a major driver of the company's overall triple-digit adjusted EBITDA margin expansion. Corporate costs finished the year at $127 million, down $6 million from the prior year, largely due to adjustments in management incentive costs. And lastly, adjusted EPS for the year was up 13% to $2.36 per share. It is important to note that the adjusted EPS growth includes significant one-time headwinds associated with FX, prior year tax rate and interest expense. If you exclude the impact of these headwinds, our adjusted EPS growth would have been over 20%. Moving to the next slide, in 2022, we returned $294 million to shareholders through share repurchases and dividends. Free cash flow for the quarter was $321 million, including CapEx, which totaled $34 million. And total company liquidity now stands at $2.7 billion, based on approximately $1.6 billion of cash and $1.1 billion of availability on our revolving credit facility. It's important to note that these figures include approximately $525 million of cash, which has subsequently been deployed for the SPX Flow's Air Treatment business acquisition on January 3, 2023. Leverage for the quarter was 0.8 turns, which was 0.3 turn improvement year-over-year. And cash flow outflows for the quarter included $184 million deployed to M&A, $8 million to our dividend payment and $3 million for share repurchases. M&A remains our top priority for capital allocation and we continue to expect M&A to be our primary usage of cash. I will now turn the call back to Vicente to discuss our segments.

Thanks, Vik. On Slide 12, our Industrial Technologies and Services segment delivered strong year-over-year organic revenue growth of 22%, with volume growth outpacing growth from pricing. Adjusted EBITDA increased 24% year-over-year with an adjusted EBITDA margin of 27.4%, up 170 basis points from prior year with an incremental margin of 38%. We also delivered sequential margin expansion of 120 basis points from Q3 to Q4. We continue to see solid demand for our products with organic orders up 4%. Note that on a two-year stack the ITS segment organic orders grew more than 20%. Moving to the individual product categories. Each of the figures exclude the negative impact of OpEx, which year-over-year was a 67 percentage point headwind across the total segment on both orders and revenue. Starting with compressors, we saw orders up in the low-single digits and we continue to see oil-free products orders outpacing oil-lubricated products. Orders were down mid-single digits in the Americas, driven by a large order push from Q4 to the first quarter of 2023. EMEIA demand continues to be above market, with orders up mid-single digits. The Asia-Pacific team continues to deliver great performance with orders growth in the mid-teens, which is impressive when you think about our team in China delivered double-digit growth even throughout the COVID-related closures and disruptions. In vacuum and blowers, orders were up low-20%s level. And the power tool and lifting global orders grew mid-single digits. Moving to the innovation in action portion of the slide, we're highlighting our footprint expansion in India, which is another organic investment initiative we're driving. We have seen significant growth in India and we continue to drive opportunities for in-region for region manufacturing, which is driving the need for increased our footprint. Turning to Slide 13. Revenue in the Precision and Science Technologies segment grew 9% organically. Additionally, the PST team delivered adjusted EBITDA of $93 million, which was up 20% year-over-year, with incremental margins of over 80%. Adjusted EBITDA margin was 30.1%, up 330 basis points year-over-year. We continue to see sequential improvement in our adjusted EBITDA margins driven by price/cost improvement and synergy delivery on our recently completed M&A, such as Seepex. Organic orders were down 2% year-over-year as Q4 comps were challenged due to headwinds from a single large hydrogen order intake in Q4 of 2021, which will deliver a network of refueling stations in New Zealand. Adjusting for these hydrogen orders, normalized organic orders were up slightly. And on a two-year stack, organic orders are up double digits. For our PST innovation in action, we're highlighting our EVO Electric Diaphragm Pump. This recently launched product is the only-electric triple-chamber diaphragm pump in the market. The EVO Series pump is utilizing high-growth end markets, such as electric vehicle batteries, specialty chemical manufacturing and food and beverage applications. This product offers significant energy savings, leading to faster payback times for our customers. And this is yet another perfect example of sustainability as a growth driver and our focus on high-growth sustainable end markets, enabling us to deliver double-digit earnings growth. As we move to Slide 14, we're introducing our 2023 guidance. Total company revenue is expected to grow between 7% to 9%, with the first half growth of 9% to 11% and the second half growth of 4% to 6%. We anticipate organic orders growth of 3% to 5%, where price is approximately 70% and volume 30%. FX is expected to contribute approximately 1% of a headwind for the year, of which the impact will primarily be realized in the first half of the year. M&A is projected at $270 million, which reflects all completed and closed M&A transactions in 2022, as well as the acquisition of SPX Flow Air Treatment and Paragon Tank Truck. Corporate costs are planned at $140 million and will be incurred evenly per quarter throughout the year. The year-over-year increase is largely driven by investment in IIoT and demand generation. Total adjusted EBITDA for the company is expected to be in the range of $1.57 billion and $1.63 billion. At the bottom of the table, we're introducing adjusted EPS guidance. While we have not historically guided EPS, we will now include these key metrics moving forward. Adjusted EPS is projected to fall within the range of $2.48 and $2.58. We anticipate our adjusted tax rate to be in the low-20%s, interest expense to be approximately $165 million and CapEx to be around 2% of revenue. The right-hand side of the page includes a 2023 full year guidance bridge showing the growth associated with operational activity and the headwinds associated with interest expenses, FX and changes in the adjusted tax rate. Based on the above guidance, adjusted EPS growth attributed to operational performance is approximately 13% to 17%, offset by approximately 8% in headwinds from interest expense, FX and the adjusted tax rate. As we sit here in mid-February and to provide some Q1 commentary, it is worth noting that we have seen organic orders continue to be positive on a quarter-to-date basis through the first week of February, which is consistent with our expectations. Turning to Slide 15. As we wrap up today's call, I want to reiterate that Ingersoll Rand is in a solid position. We finished 2022 with strong Q4 results. We continue to monitor the dynamic market conditions while remaining agile and prepared for any challenges that may come. To our employees, I want to thank you again for an excellent finish to the year. We delivered strong results by demonstrating our commitment to meet our financial targets and executing our economic growth engine through the strong use of IRX. Thank you for your hard work, resiliency and focus actions. These results show the impact you have as owners of the company. Our balance sheet is strong. And with our disciplined and comprehensive capital allocation policy and strategy, we remain resilient and have the capacity to deploy capital to investments with the highest return as we continue our track record of market outperformance. With that, I will turn the call back to the operator and open for Q&A.

Thank you. We will now begin the question-and-answer session. We have our first question from the line of Mike Halloran of Baird. Your line is now open.

Hey, good morning, everyone.

Good morning, Mike.

Good morning.

Can we go through the first half-second half cadencing you're talking about? Obviously, FX gets a little more favorable in the back half of the year, but the growth rate is slowing. How much of that's organic versus just phasing of acquisitions? And then, is it just price? Is it an assumption on the macro environment being a little bit worse? Just kind of any puts and takes on how you think about the seasonal factors 1H versus 2H?

Yes. Hey, Mike. I'll say that facing comparable to what we have seen historically. Clearly, the item to watch is that, as expected, comps become more meaningful as we go into the back half of the year. And we don't have anything to assume in our guidance or the phasing related to supply chain returning to normalization and/or significant commodity deflation either. And so, in terms of the organic, I mean, second half, based on that and the tough comps, we say kind of roughly flattish. And as we said on the remarks, good continued momentum that we see on price. And what we expect is that we expect as we go through the year to see continued strength on kind of what we call the long cycle orders, which are driven by a lot of these megatrends that we've spoken about before in the past around sustainability, onshoring and things like that. So, net-net, that leads us to believe that we just don't see significant changes in our backlog as we go through 2023.

So, you're essentially assuming a pretty normal sequential cadencing and not much change in the macro backdrop, if I interpret that correctly, Vicente?

That's correct. Yes, that's correct. And basically, as you can see, a bit of prudency here in the second half.

Yes. No, that helps. And then, on the M&A side, obviously, the backdrop has changed a little bit, not for you all. You guys seem to still see very high levels of success here. Maybe you could just talk about what the buyer's mentality is? Obviously, you've got a lot of deals you're working on, the LOIs are high. Have you seen a greater willingness by buyers to move forward and consummate some of these transactions? Has there been any change in that landscape at all?

Yes, Mike, the simple answer is yes. We are experiencing significantly stronger momentum as we engage with various sellers. This is largely because over 90% of our deals and transactions are sole sourced. We have established long-term relationships with companies that are drawn to Ingersoll Rand. These relationships are based on the understanding that, despite ongoing changes each year, ownership recognizes that we are an excellent partner for maintaining their legacy and treating employees exceptionally well. This is contributing to our ability to open doors and have more productive conversations with many of the companies we aim to bring into Ingersoll Rand. This is why we feel confident that our M&A pipeline remains robust. Additionally, we currently have 11 transactions under letter of intent, and the momentum continues to grow. We are very pleased with what we are observing.

Thanks, Vicente. Appreciate it.

Thanks, Mike.

Thank you. We now have Julian Mitchell from Barclays. Your line is open.

Hi, good morning. I wanted to start with the top-line outlook. It sounds like you believe that the backlog will remain at about $2 billion throughout the year, with a book-to-bill ratio around 1 for the entire year. In the second half, regarding your organic sales guidance, you are expecting volumes to decline slightly, but this is only due to comparisons from the previous year and not because of destocking or any specific region facing challenges.

Yes, that is absolutely correct, Julian. Yes, that's accurate. And again, we're saying that we're viewing these as prudency right now at this stage, and, as you know, we'll continue to update as the year goes, kind of not to the similar to what we did here in 2022.

That's helpful. And then, just on the thinking about the sort of the earnings seasonality, because I know in 2022, we spent the whole year, people fretting about the sort of Q3, Q4 ramp in EBITDA margins and the implied incrementals in the back half and all the rest of it. So, just to understand, for 2023, are you assuming kind of first half, second half EPS split? Is the consensus split roughly okay at sort of 45/55 and then anything you're kind of calling out year-on-year moving around much in the back half?

Yes. Julian, this is Vik. I'll take that. I think the answer is that, that's correct. I think the phasing of whether you want to talk about top-line or on the earnings side of the equation is very consistent with what you've seen historically. I think the margin implication from an adjusted EBITDA perspective is, roughly speaking, close to 100 basis points on a total year basis for total company, which remains relatively consistent and right in line with what we messaged at our last Investor Day. So, again, nothing dramatically different there, but yes, the phasing is very much consistent with what you've seen in years past.

That's great. Thank you.

Thank you. We now have Jeff Sprague of Vertical Research Partners. Please go ahead when you are ready.

Thank you. Good morning. Hey, just on the price/cost...

Good morning.

Hey, good morning. Thanks for the question. Just want to be clear, I think you said 70% of the organic growth guide was price, just confirming that. But the question is would that just be carryover price or are there other actions in flight for 2023? And maybe you could also just give us some perspective on just the total price/cost equation for 2023 embedded in the guide?

Yes, Jeff. That's correct. Seventy percent of the price, as we indicated, consists largely of carryover. We're still implementing another regular price increase, but this one is more in line with our past practices, which typically results in about a 1% to 2% incremental new price that we expect to realize over the year. This provides a perspective on what we're observing regarding pricing. From a price and cost standpoint, we anticipate being price and cost positive and reporting that throughout the year. Additionally, we expect the cost side to remain at this level, so we are not anticipating a major deflationary market.

And then, shifting gears to discuss some of the IIoT enabled initiatives, to what extent are customers paying more for that capability? And considering the product has that capability, is it leading to increased or more profitable service or other revenue streams?

Yes, great question there, Jeff. So, the paying additional comes in from as you now referenced to OEM, which is with the added services that we're offering. So, we are having a remotely connected device. We're able to have better service agreements with our customers and, therefore, that generates a higher recurrent revenue that we see. So that's the whole purpose of why we want to have our IIoT ready and enable machines, because we want to generate new revenue streams that are more recurrent in nature on top of, obviously, selling the device. So, I think that's what we're seeing. And in terms of customers willing to pay for it, I'll say, yes, I mean, because today there's a lot of lack of skilled labor out there and customers are kind of more dependent on companies and OEMs like us to be able to demonstrate the added benefits that we can have. So yes, I think it's just one of those that we see it as increased way to add services, increased way of adding energy efficiency. And net-net, it's a very quick return for the customers on what they pay.

Great. Thank you.

Thank you, Jeff. Your next question comes from the line of Rob Wertheimer of Melius Research. Please go ahead when you are ready.

Thank you. Good morning, everybody.

Good morning, Rob.

I wanted to revisit the revenue outlook briefly, noting that backlog is up by approximately 30%, and organic growth driven by price is increasing by 3% to 5%. Vicente, you mentioned previously that you're not anticipating significant improvements in supply chain costs. Is the revenue still being limited by supply chain issues? If those improve, do you see potential for additional revenue? How do we reconcile the backlog with the orders and the revenue outlook?

Yes. Rob, I mean, some constraint by supply chain, but also keep in mind too as well labor. So, I think as we kind of continue throughout the year and we continue to see better productivity, but it's really much more so on the prudency and why we say that backlog will stay at the current level as we continue to shift more towards our more normal phasing that we typically have. So, yes, some supply chain constraints, but the majority, I'll say, more of labor constraints to be able to bring more people to factories and be able to ship more.

Okay, perfect. And then, I apologize if I missed in the prepared remarks, but ITS North America orders were kind of the only weak spot. Any additional color there? I don't know if you're seeing broad-based strength in small projects and large, or order picking up or if things are fading away? Thank you.

Thank you, Rob, for the great question. We're actually experiencing significant momentum in what we refer to as long cycle orders, which are driving strong capital expenditure cycles. As we engage in more projects related to ongoing growth trends, such as onshoring, energy efficiency, and carbon capture, we see an increase in these activities. This can occasionally lead to some fluctuations in our quarterly results. However, when we examine the performance of ITS America, it's better to compare the first half of the year to the second half. We actually observed organic acceleration moving into the second half compared to the first half. It's noteworthy that during the third quarter, ITS Americas had one of its most successful quarters, with a book-to-bill ratio close to 1.2. Therefore, we believe that looking at the first half transitioning into the second half, we saw significant order acceleration in ITS Americas, which gives us confidence in the continued solid strength of demand. As mentioned earlier, as we progress into 2023, we continue to see positive organic order momentum across all regions, including ITS Americas.

Great. Thank you.

Thank you. We now have Nigel Coe from Wolfe Research. Your line is open, Nigel.

Thanks. Good morning, everyone.

Good morning.

So, it seems like good morning. You're referring to the hydrogen order from the previous year and the order in North America that has moved into 2023. It appears that we have larger, lumpier orders coming in, which is expected given these significant decarbonization projects. Do you agree that we will experience lumpier orders going forward? My main question is, as we receive these larger orders, will our margins on them be comparable to our typical margins?

To address your first question, yes, we do see a significant number of these large projects receiving substantial capital expenditure. Historically, we have indicated that these projects tend to offer us good margins. Given their scale, they will positively impact our profit and loss statement. It’s encouraging for us to see these capital expenditure projects moving forward, as they have longer cycles, which provides us with better visibility. Additionally, they align well with our growth trends in areas such as sustainability, energy efficiency, and onshoring.

Nothing wrong with fluctuations as long as they contribute to revenue. I want to discuss the growth in service revenue, which you mentioned is 17% excluding foreign exchange effects. This suggests mid-teens organic service growth, which is quite strong. I’m curious about the extent to which this service growth is influenced by deferred catch-up or if we are seeing significant contributions from IIoT-enabled devices to revenue growth. Any insights on this would be appreciated.

Yes. It is, I would say, it's more of the latter in some regards. As you remember, during our Investor Day, we spoke about our care packages and service agreements that we developed as they get related to our IIoT-related services. And we're definitely seeing very good acceleration of that driven by trends such as customers not being able to find the skilled labor that is needed in the factory to be able to service, repair and maintain compressors or other devices where we can provide that. And in addition to that, we can provide an energy efficiency as a guarantee, but energy efficiency reduction that the customer can have and visibly see in addition to other benefits. So, it is actually good news for us to see that good solid momentum and our teams are doing very well on that.

Great. I'll leave it there. Thanks for the questions.

Thank you.

Thank you, Nigel. Your next question comes from David Raso of Evercore ISI.

Hi. Thank you. I just wanted to pick up on the orders so far in '23 commentary. Even excluding the hydrogen comp, PST orders were up 0.2%, basically flattish year-over-year, while the ITS obviously was up 3.6%. Are you saying the order growth has accelerated so far in '23, just to be clear?

Well, David, again, we're saying that the order momentum is actually positive across the two segments. So, yes, I mean, if you think about it from a percentage perspective, that is correct.

And the type of projects that you're getting, I just want to understand what's the pricing in these new orders versus what's in the backlog already? Just to get some sense of, assuming costs don't reaccelerate, what is the pricing dynamic in the new order book?

Yes, David, I would say to Vicente's remarks that orders in the first quarter, quarter-to-date across both segments are trending positive on an organic basis. And within that, I would say the pricing dynamic, given the carryover pricing dynamic that Vicente mentioned, which, as you would expect, is more obviously evident in the first half of the year, comparatively speaking, I'd say it's comparable to what you have seen exiting 2022. So, nothing has dramatically changed in that respect. And I think to the question that was asked before, the margin profile is healthy on those projects, and the pricing levels on those projects are commensurate or comparable to what you see in some of the more standard book/ship type business. So, we've been seeing comparable margin performance and comparable pricing across both the shorter cycle and longer cycle components of our business.

All right. Appreciate it. Thank you.

Thank you. We now have Steve Volkmann of Jefferies. Please go ahead when you are ready.

Great. Thanks. Good morning, guys. I want to go back to the supply chain. I was interested in your comments that you didn't project anything really improving through the year. But can you just give us the sort of current conditions? Because it seems like we're hearing sort of broadly things are improving. So, I just wanted to kind of square those up.

Yes, it is definitely better compared to last year. However, there are still some bottlenecks and issues that arise occasionally. It's important to note that the situation is not perfect and we haven't returned to normal conditions. Looking ahead to 2023, whether due to the reopening of China or various capital expenditure cycles we are experiencing with long-term projects, we anticipate continued supply chain constraints. We are being proactive in acknowledging that our teams will need to keep working hard, as things are unlikely to return to normal from a supply chain perspective in the second half of the year, based on various trends and indicators we are observing.

Okay, great. Vik, did you mention 100 basis points of EBITDA margin for the year? Is there anything we should consider regarding the two segments or comparing them to each other?

Yes. It's a good question. So, yes, approximately 100 basis points enterprise-wide. You're going to see both segments trend right around there. I do think the PST probably is a little bit more outsized than ITS, probably not overly surprising, because you had a little bit of an inverse happening in 2022. So, I think a lot of this is now, quite frankly, as we've now got Seepex, which was probably the largest headwind on EBITDA margins through the better part of 2022, now that's coming closer to fleet average with, frankly, still room to run, I think you're going to see a little bit more outpace on the PST side comparatively speaking, but total business should be trending closer to 100 basis points.

Great. Thank you, guys.

Thank you. We now have Josh Pokrzywinski from Morgan Stanley. Your line is now open, Josh.

Hi, good morning, guys.

Good morning, Josh.

Hey, Josh.

Good morning. I wanted to ask about what you’re observing in the compressor area or even more generally across ITS. You mentioned some of the major factors, Vicente, like nearshoring and a broader CapEx cycle, which we haven’t seen for a long time. Are you noticing larger equipment being ordered, and is there a trend towards adding capacity rather than just replacement? I understand some of this detail might not show up in the numbers, but when you talk to customers, are they expanding their capabilities, or is this just an ongoing replacement cycle due to the disruptions from post-COVID?

Yes, Josh, we are experiencing a positive mix of both new rooftops and increased capacity. To provide some context, this is similar to what Ingersoll Rand has been doing. Last year, we reopened our Buffalo facility, which can be viewed as an expansion of capacity. We also invested in expanding our factory in Brazil, which represents an additional rooftop. Recently, we announced an expansion and the creation of a new building facility in India, adding to our existing four manufacturing facilities there. Our customers are also pursuing similar strategies, and we maintain close relationships with them because being localized is a key strategic advantage for us. This approach has been part of our strategy since our Gardner Denver days. We're noticing significant momentum in this regional focus due to onshoring, not just in the US but also in India, China, and Europe. Our ability to adapt our products and localize them is contributing to this momentum. Regarding technology, we are seeing strong progress, especially in oil-free solutions, which is encouraging as we move towards high-growth sustainable markets like food, beverage, and pharmaceuticals, where we can offer unique solutions and drive accelerated growth.

Got it. That's helpful. And then, just a follow-up on hydrogen, specifically. And I think there's a lot of stuff out there that's in discussion, maybe projects that are not quite ready to go FID, because there's a norm making clarity in the IRA that hasn't been established yet. But just wondering how you guys are thinking about the timing of when you could see another order wave there? And anything you're watching specifically that could help us track alongside that?

Sure, Josh. I'll break it down into two parts. First, on the PST side, where we manufacture dispensing units, we're noticing improved momentum in Europe as more countries are adopting hydrogen. We anticipate this trend will continue to strengthen throughout 2023 in Europe. The initial developments in PST hydrogen primarily occurred in the Asia Pacific region, and we've always indicated that this was just the starting point before expanding to Europe and eventually reaching the US. This transition is indeed happening, with a shift from Asia Pacific to Europe, and we're also hearing discussions about hydrogen dispensing networks in the US, particularly in light of recent IRA budgetary discussions. As for the ITS side, the situation is quite similar. However, I'll mention that the significant capital investments discussed in relation to hydrogen have yet to materialize within our compressor or ITS segments. We believe there is still potential for growth in that area. As you pointed out, whether it's through the IRA or other funding sources in Europe, we hope these will facilitate the launch of various projects. Overall, we expect positive trends to carry on for the next few years.

Great. Thanks for the color. I'll leave it there.

Thank you. We now have Joe O'Dea of Wells Fargo. You may proceed.

Hi. Thanks for taking my questions. I wanted to start on the backlog, and I think you said a little over $2 billion of backlog. But it sounds like the view would be that, that's more a normalized level, would be trending, I guess, a little bit over 30% of 2023 revenue. I'm guessing, historically, backlog hasn't been quite as strong relative to revenue. So, could you just talk about sort of what you're seeing sort of structurally within that, the confidence that we should be thinking about that as more of a normalized backlog level?

Yes, Joe. I believe that what we see as normalized right now in 2023 may change as we move into 2024 and beyond. We anticipate that conditions will return to what they were previously. Our expectation for maintaining a higher level of backlog is due to several long-cycle capital expenditures that are ongoing, which should continue to contribute to that backlog, alongside what we believe to be solid fundamental growth in the short cycle, as we've mentioned. So, we don’t view the current situation as the new norm of 30% or $2 billion; rather, at this moment in 2023, we are indicating that we expect our backlog to remain stable based on our projections for the remainder of the year.

Okay. And then, just a clarification on the $200 million to $300 million of annualized inorganic revenue to be acquired. Of that, how much is included in the 2023 M&A revenue contribution? And does that amount include sort of all 11 of the LOIs that you currently have?

Yes, Joe, let me break it down into two parts. The guidance shows that $270 million from mergers and acquisitions is included. This amount reflects completed or closed acquisitions to date. Essentially, everything from 2022 that has any lasting impact is accounted for, particularly two significant contributions: the SPX Flow Air Treatment business, which was finalized at the start of the year, and the smaller Paragon Tank Truck acquisition, which closed earlier this month. That makes up the $270 million. As for future expectations, we do not factor in any pending transactions in our guidance. The 11 additional deals in the Letter of Intent stage would represent extra contributions if they close. As we've done in the past, once those transactions are completed, we'll include them in our future guidance. So, to reiterate, any non-completed or non-closed M&A would add to our current guidance for 2023.

Are those 11 transactions included in the $200 million to $300 million that you mentioned for acquisitions in 2023?

That is correct. Yes. So, I think our affirmation of the capital allocation strategy includes that we expect to close another $200 million to $300 million on an annualized basis. And obviously, that's just contingent on the timing in terms of what will actually impact 2023, but that is correct.

Got it. That's helpful. Thanks a lot.

We now have Nathan Jones of Stifel. Your line is now open.

Good morning. This is Adam Farley on for Nathan.

Good morning.

So, you performed very well in China in 2022, despite COVID headwinds. Could you provide some color on how you outperformed? And maybe what you expect in 2023 in China, specifically with reopening?

Yes, Adam, I want to extend a big thank you to our teams in China and the Asia Pacific. I had a celebratory call with them last night as we kick off many of our initiatives for 2023. Overall, our team remains agile and adept at identifying growth opportunities in China. They have successfully repositioned our products and utilized demand generation to enhance our penetration into these unique end markets. It's crucial that our teams stay nimble, and they are indeed discovering strong growth opportunities, particularly in areas like battery production, photovoltaic production for solar panels, and even electric vehicle production. They are effectively leveraging technology and demand generation to gain additional market share.

Okay. And then, on the recent close of the SPX Flow Air Treatment business, could you provide any color on revenue or cost synergy opportunity, given that it's still early days of integration work?

Yes, of course, Adam. To reiterate, we completed the SPX Flow transaction on January 3 at the start of this year. We anticipate a revenue contribution of approximately $180 million, which is just below $200 million, and is consistent with our historical M&A activity. We expect it to fit within the mid-20% EBITDA margin range. As we mentioned when announcing the transaction, we foresee cost savings and synergy opportunities over the long term that will enhance ITS segment margins. We are about 45 days into the integration process, and as expected, using IRX and the entire IDM process to guide our efforts, the integration is proceeding well and aligns with our expectations.

Okay. Thank you for taking my questions.

Thank you.

Thank you. We now have Chris Snyder of UBS. Please go ahead when you are ready, Chris.

Thank you. I want to follow up on some of the order trends. So, the book to bill is going from 0.91 in Q4 to an expected 1.0 in 2023. Should we expect an immediate jump back up to that 1.0 level in Q1, or will it take a couple of quarters to play out? And then what type of visibility do you have into orders as we go beyond Q1, maybe into the back half of '23? Thank you.

Sure, Chris. I think you described it fairly accurately. We saw just over 0.9 in Q4. It's quite common in our business for the book to bill ratio to be below 1 in the second half of the year, particularly in Q4. This is mainly due to shipping larger, longer cycle orders during that time, especially in the ITS business. That was reflected in our Q4 results, along with our strong revenue performance. This caused the book to bill to be under 1. However, as Vicente mentioned, we're seeing continued order momentum in the first quarter, with organic orders increasing. It's important to note that this growth is despite the timing headwind from the Chinese New Year, which occurred in January this year compared to February last year. We are still encouraged by this trend. As Vicente indicated, our backlog remains healthy, bolstered by longer cycle projects that will extend over a 12- to 18-month period. So, while the book to bill is less than 1, that’s typical for Q4, and we're optimistic about what we anticipate for 2023.

No, yes, I appreciate that and I appreciate the color on the seasonality. And then, on the implied margin guidance, so my math kind of pegged EBITDA margins up 70 bps, maybe up to 80 bps year-on-year at the midpoint. So obviously, a bit below the run rate that we've seen and below the kind of the multiyear target that the company has laid out at 100 basis points. But it sounds like price/cost will continue to be kind of in your favor. So, can you just maybe talk about some of the moving parts there on the margin side as we build up to the guide? Thank you.

Sure. I'll address that. Yes, we anticipate EBITDA margins increasing by 80 to 90 basis points, which is slightly below 100 basis points and aligns with expectations. When we outlined our Investor Day targets, we mentioned an average increase of around 100 basis points over multiple years. It’s also important to note that we have exceeded that in the past two years, so we remain on track. Regarding guidance, your observation is accurate. We expect to maintain a positive price-to-cost situation. We are actively pursuing productivity improvements and synergies from the merger to balance any merit or labor inflation we are encountering, as previously mentioned. Furthermore, we are focused on reinvesting for growth to ensure ongoing organic growth, which aligns with our Investor Day goal. You will see necessary investments in commercial and growth resources, along with specific corporate-level investments in demand generation and IIoT. We will remain cautious and expect year-over-year margin expansion as we progress through the year, and we anticipate sequential margin increases from Q1 to Q4, similar to what occurred in 2022.

Appreciate all of that. Thanks for taking the questions.

You bet.

Thank you. I would now like to turn it back to the CEO, Vicente, for some final remarks.

Thank you so much. As I kind of wrap up the call today, I just want to say that our teams have done an outstanding job executing our plan throughout 2022, despite the ongoing macro challenges, and that's because they think and act like owners because they are owners of the company at Ingersoll Rand. And we have clearly demonstrated that there's a lot of resiliency here in our business as we continue to invest organically and inorganically and continue to focus ourselves in sustainability, innovative product and solutions. And that, we believe, is truly positioning Ingersoll Rand as a global leader. So, thank you for the time and attention today. Thank you.

Thank you all for joining. That does conclude today's call. Please have a lovely day, and you may now disconnect your lines.